Managing Editor

Golden Opportunities?

It's important to look at commercial NET interest in a commodity to properly ascertain hedge sentiment.

For gold, net shorts topped out as prices reached their spring peak. Sellers, thus, locked in the market's highest prices through futures. Commercial net short interest has since been lightened to a level not seen in years,


On Nov 03 04:31 PM Smarty_Pants wrote:

> If commercial open interest is declining then another upleg is about
> to start shortly. Maybe it won't be the onset of the "big one" but
> prices are very likely to move higher from here.
>
> If commercials are reducing their net positions it means that the
> current prices are too low. They will be much more likely to wait
> for another rally in price back to 'realistic' levels before taking
> any more positions on the short side for future delivery.
>
> The commercials aren't stupid. They close out their short positions
> when prices get "too low" and re-establish them when prices are "too
> high". It's their business to know what they're doing. When they
> all do the same thing, it's telling you something (or it ought to
> be).
>
> Of course pinpoint timing is another story. Commercial Open interest
> figures will tell you which way the big boys are leaning though.
> Keep your eyes open.

Jeffrey Christian: Gold and Silver Could Spike

Jake -

Keep in mind the format of this article was an INTERVIEW, not an analysis. The "star" in an interview is the interviewEE, not the interviewER.

An interviewer's goal is to get the interviewee to offer his/her insights and opinions.

There's plenty of analysis elsewhere on HAI. As examples, I direct your attention to "Consumers Buy Into Inflation" at www.hardassetsinvestor... and "Venti-Sized Gains For Coffee" at www.hardassetsinvestor....


On Nov 16 01:31 AM Jake2 wrote:

> "HAI: Everyone I talk to is bullish on gold. I wonder: What could
> go wrong? What could keep gold prices down?"
> You"ve been talking to the wrong people. What's wrong is no one is
> buying. Didn't someone tell you? Gold is down 14% in the past few
> weeks. How about some hard headed analysis from Hard Assets once
> in a while instead of tendentious twaddle.

Oil Analysts' Forecasting Average (1-for-4) Holds

Jet fuel is kerosene, not a fuel oil like heating oil or diesel, so its not counted in the distillate fuel category. Jet fuel is indeed down. By 9.2% year over year, in fact.

As for the crude oil/natural gas spead, you said "Nat. Gas has gone down approximately the same amount from its peak as has crude, just because it is closer means squat."

If you want to compare oil and gas on a dollar-for-dollar basis, that can't be true.

In September, the ratio was 15-to-1 in oil's favor. The ratio, as you point oit, now about 10-to-1. That means oil's premium has diminished. And that DOES mean something. Specifically, it means it was profitable to buy natural gas while selling crude over the past couple of months.

If your statement: "The old BTU generation equation of 6-8 times nat gas puts crude in the $40 to 52 range or some 30% lower than crude's current price." is a forecast, then remaining long gas/short oil would be warranted.

Oil Analysts' Forecasting Average (1-for-4) Holds

Keep in mind that the oil analysts reference in this report are NOT EIA employees, but representative of sellside (brokerage) firms and research organizations.

With that in mind, it's probably better to inquire into the credibility of these prognosticators.

A Giveaway Oil Market

But here, were discusssing THIS year's oil price. The year-to-date aveerage price of spot WTI crude is now $112.73/bbl. EIA is essentially saying that oil price action price for the balance of the year must such that the average will fall another 73 cents. If prices, however, stay at the current sub-$90 level, the average price will end up lower. Oddly enough, crude prices must RISE at some point to LOWER the average. Capice?

More Off-Base (Way Off-Base) Oil Forecasts

Not oil price predictions. Not even too high or too low. Just that consensus expectations of production and suppliy are notoriously inaccurate.

In recent weeks, the best Oil Patch prognostications have been 1-for-4 (oil stocks, gasoline and distillate inventories and refinery utilization).

The predicitions are made on the eve of the weekly EIA report's release. They're simply not good guideposts for trading.

More Off-Base (Way Off-Base) Oil Forecasts

Pautaut -

If you don't follow the numbers, you also don't follow the trends.

These numbers aren't isolated one-offs. They're the continuation of a trend that began before Ike was spawned.

Analysts' Oil Forecasts Wildly Off Base

The natural gas/crude oil spread was being TRACKED; it wasn't a holding. As of Wednesday's settlement, a 1-for-1 spread was $8,170 to the good, yielding a 54% return on margin.

How Natural Gas and Oil Prices Are Linked

The seasonal shrinkage of the crude oil premium to natural gas is already under way. Since Labor Day, the spread's narrowed $1.557 per mmBTU, or 16%. That would yield a $9,590, or 63%, return on margin for a 1:1 spread (long NG/Short CL).

See the Hard Assset Investor article, "Spreading Oil And Natural Gas" at www.hardassetsinvestor... for details.

Winter Heating Oil, Nat. Gas and Crude Oil Preview

The crack spread for spot month crude versus one-month distant products was $9.59 per barrel as of Friday's close, yielding a gross refining margin of 9.02%.

With the decline in crude prices, refining margins have slowed their seasonal decline and actually buoyed from an early August low of 5.78% (crack spread equivalent: $6.92 per barrel).

The crack spread, and other petroleum complex data, are updated every Wednesday in Hard Assets Investors' daily column, "Brad's Desktop." The most recent update is here: www.hardassetsinvestor....

Test-Driving Some Exchange-Traded Oil Vehicles

Given the current volatility of spot futures, there's a 2% probability of oil rising above UOY's/DOY's upside trigger of $185 per barrel by year's end. The probability of crude punching through the $15-a-barrel downside threshold in that same time frame is statistically zero.

I'd say those are pretty good odds for a DOY play.

Oil Analysts: 1-for-4

WHAT excess oil?

You're right. We're profligate consumers of oil and apparently have a learning disability. After a couple of oil shocks, we jawboned a lot about alternatives but quickly reverted to our old consumptive ways.

There are two aspects to "political will." First, there's the willingness of developed countries to reduce oil consumption. Then there's the ability of developing countries to sacrifice their "catch-up" gains.

OECD countries, especially those with established mass transit infrastructure, are much more likely to conserve. What incentives exist for countries anxious for modernization to do the same?

Oil Analysts: 1-for-4

While our thirst for finished fuels has diminished from last year's level, it's hardly a wholesale destruction of demand.

Oil companies, like speculators, are easy targets for politicos. The oil companies are producing less because they're GETTING less. Oil, that is. Oil fields are increasingly subject to nationalization as reserves dry up.

Only two words are needed to describe the forces at work: "supply" and "demand."

Oil Analysts: 1-for-4

Redbaron -

You're not missing a thing.

Production is NOT keeping up with demand. There's a lot of idle capacity (see the drop from 93.6% to 87.2% in utilization) because margins are so low. With yesterday's price blip, refining margins shrank further to 6.9% or 21 cents a gallon.

And the Oil Derby's Off...Way Off

User 224526 -

Check one of your quotes for accuracy and your presumptions. You cite one source saying:

"When Enron failed and took its private, unregulated energy exchange to the grave, another rose to take its place. The Intercontinental Exchange (ICE) was the brainchild of

Morgan Stanley,
Goldman Sachs,
British Petroleum,
Deutsche Bank,
Dean Witter,
Royal Dutch Shell,
SG Investment Bank and
Totalfina. "

Enron entered bankruptcy in 2001. Dean Witter was merged out of existence in 1997 after combining with Morgan Stanley.

Yhe creations of ICE's backbone, the former International Petroleum Exchange, predates by decades the Enron mess.